The Fifth Circuit Court of Appeals enjoined enforcement of the Corporate Transparency Act (CTA) on December 26, 2024, in Texas Top Cop Shop, et al. v. Merrick Garland, et al., No. 24-40792 (5th Cir. 2024). As a result, companies are not currently required to file a Beneficial Ownership Information Report (BOIR).
Texas Top Cop Shop is one of several lawsuits, including National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala. Mar. 1, 2024), which could permanently alter the CTA. While entities are not currently required to file a BOIR, they should monitor Texas Top Cop Shop and National Small Business United closely and be prepared to file a BOIR should the status quo change.
The CTA’s Reporting Rule
The CTA requires certain businesses to provide ownership information to federal law enforcement agencies for anti-terrorism purposes. The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) recently finalized a new reporting rule that requires companies to identify “beneficial owners” and “Company applicants” in an effort to obtain increased transparency. Get more information about the reporting rule.
The rule was created to combat bad actors who operate through corporate entities and behind a curtain of anonymity. The rule became effective on January 1, 2024, but has been challenged by pro-business groups that claim the CTA is unconstitutional. The federal government was enjoined from enforcing the CTA on December 26, 2024.
The Fifth Circuit’s Injunction
The Texas Top Cop Shop plaintiffs sued several federal agencies alleging that the CTA’s mandated disclosure of anonymous owners violates the First and Fourth Amendments. Tex. Top Cop Shop, Inc. v. Garland, 2024 U.S. Dist. LEXIS 218294, *21–22 (E.D. Tex. Dec. 3, 2024). They also argue that the CTA impinges on States rights under the Ninth and Tenth Amendments by, among other things, regulating interstate commerce. Id. The District Court agreed with the plaintiffs, found that the CTA violates the Tenth Amendment, and entered an injunction halting enforcement of the CTA on December 3, 2024. Id. at *116.
Defendants immediately appealed the District Court’s decision to the Fifth Circuit Court of Appeals. On December 23, 2024, the Fifth Circuit stayed the injunction, reinstated the CTA, and set an expedited briefing schedule for the parties. Tex. Top Cop Shop, Inc. v. Garland, 2024 U.S. Dist. LEXIS 218294 (E.D. Tex. Dec. 23, 2024). The FinCEN website immediately promulgated new deadlines for compliance with the CTA’s reporting rule in response to the Fifth Circuit’s decision. [Financial Crimes Enforcement Network, https://fincen.gov/boi (last visited Jan. 2, 2025).]
But, on December 26, 2024, the Fifth Circuit again reversed course, and a separate panel vacated the stay entered just three days prior. It revived the injunction to “preserve the constitutional status quo while the merits panel considers the” validity of the underlying claims. Tex. Top Cop Shop, Inc. v. Garland, 2024 U.S. App. LEXIS 32702 (5th Cir. Dec. 26, 2024). As a result, enforcement of the CTA was again enjoined, and its reporting requirements halted.
On December 27, 2024, the FinCEN website (Supra, note 2) issued the following alert:
In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
There have been no updates since the Fifth Circuit’s December 26, 2024, decision but companies should monitor the case closely. While companies are currently exempt, they should be prepared to file a BOIR if the injunction is dissolved.
